Saturday, 8 September 2012

Employer Liable for Misrepresenting Position

I tend in this blog to focus on recent case law, a
trend I do not intend to stop. However, from time to time, it is interesting to focus on the classics, the foundations of Canadian employment law.

One of the key cases in this area is Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 SCR 87;
a case often thought of as establishing the test for the tort of negligent
misrepresentation. And, while it is true that Cognos is the leading case on that point, Cognos was also an employment case and the facts underlying it are
unfortunately more common than they should be.

Facts

As Justice Iacobucci observed at the outset of his reasons
for decision:

[The case involved] the application of the tort of
negligent misrepresentation to a pre-employment representation made by an
employer to a prospective employee in the course of a hiring interview. Specifically,
this Court is being asked to determine in what circumstances a representation
made during a hiring interview becomes, in law, a "negligent
misrepresentation".A subsidiary
question deals with the effect of a subsequent employment agreement signed by
the plaintiff, and its provisions allowing termination "without
cause" and reassignment, on a claim for damages for negligent
misrepresentation.

In short, Cognos was looking to hire an accountant to assist
it with a new software product that it was developing called Multiview. It
placed an advertisement in the Globe and Mail, a national newspaper, and one of the applicants was Mr.
Douglas Queen, the eventual plaintiff in the case.

During Mr. Queen’s interview with Cognos the Manager of
Product Development for the new product line made certain representations to
Mr. Queen about the project and the successful candidate’s role within the
development of same. Among those representations were: that the position was
one drawing upon Mr. Queen’s accounting background, that the project would last
no less than two years, and that, by inference, the project actually existed.

Mr. Queen was offered the position with Cognos, which he
accepted.

The problem was that the project had not been approved by
Cognos’s board at the time that the position was offered to Mr. Queen. Thus,
barely five months after his arrival in Ottawa from Calgary, Mr. Queen was
advised that there would be a reassignment of personnel involved with Multiview
project owing to diminished research and development funding. Mr. Queen was
informed that, unless a position was available for him in Cognos’s finance and
administration department, he would most likely be laid off.

Mr. Queen was transferred within Cognos a few times but was
ultimately terminated from its employment exactly eighteen months after he
started with them.

Mr. Queen sued Cognos and in a judgment rendered on December
31, 1987, Justice White of the Ontario High Court of Justice (now called the Superior Court of Justice) upheld Mr. Queen's
claim and awarded him $67,224 in damages: (1987), 63 O.R. (2d) 389, 18 C.C.E.L.
146. On May 1, 1990, Cognos’s appeal to the Court of Appeal for Ontario was
allowed; the trial judgment was set aside and replaced by a judgment dismissing
the action with costs: (1990), 74 O.R. (2d) 176. Those decisions are summarized
in the Supreme Court of Canada’s decision, but will not be here.

Issues

Mr. Queen sued in tort. As Justice Iacobucci explained:

At no time did he
argue breach of contract, breach of collateral warranty or any other
contractual cause of action against the respondent. He did not dispute the fact
that some of the terms of his employment contract appeared to be inconsistent
with the representations made by Mr. Johnston. However, it was his
understanding from the interview that the Multiview project was a reality and
that its existence was not contingent on the happening of some future
event. He testified that were it not for the representations made during
the interview as to the nature and existence of the employment opportunity, he
would not have left his secure position in Calgary.

Justice Iacobucci put the case this way:

(1) Disregarding for now the employment agreement signed by
Mr. Queen, did Cognos or its representative Mr. Johnston owe a duty of care to
Mr. Queen during the pre‑employment interview of February 14, 1983, with respect to
the representations made to Mr. Queen about Cognos and the nature and existence
of the employment opportunity being offered?

(2) If so, again disregarding for now the contract between
the parties, did Cognos or its representative Mr. Johnston breach this duty of
care in all the circumstances of this case?

(3) If so, should the answers given to questions 1 and 2, or
the result that would normally follow from such conclusions (i.e. liability of
Cognos for the damages caused to Mr. Queen, fixed by the trial judge at
$67,224, upheld by the Court of Appeal, and unchallenged before this Court), be
different in any way in view of the fact that Mr. Queen signed an employment
agreement after the negligent misrepresentations containing, inter alia, a
termination "without cause" provision (clause 14) as well as a
reassignment provision (clause 13)?

Justice Iacobucci was of the opinion that questions 1 and 2
should be answered in the affirmative and that question 3 should be answered in
the negative. The appeal was allowed and Justice White’s judgment in favour of
Mr. Queen and granting him damages in the amount of $67,224 was restored.

Supreme Court of Canada’s Analysis

The Test for Negligent Misrepresentation

As Justice Iacobucci explained, in order to be successful in
a claim for negligent misrepresentation in Canada the plaintiff must prove five
things:

there must be a duty of care based on a "special
relationship" between the representor and the representee;

the representation in question must be untrue,
inaccurate, or misleading;

the representor must have acted negligently in making
said misrepresentation;

the representee must have relied, in a reasonable
manner, on said negligent misrepresentation; and

the reliance must have been detrimental to the
representee in the sense that damages resulted.

The Court affirmed Justice White’s trial decision that these
five elements had been made out in Mr. Queen’s case.

The Fact that a Contract was Later Entered Into

Cognos’s primary argument was that the fact that Mr.
Johnston had been negligent in his representations should be irrelevant because
Mr. Queen had entered into an employment agreement with Cognos that
contemplated that he could be terminated on the provision of one month’s
notice.

On this point Justice Iacobucci held that:

The fact that
the alleged negligent misrepresentations are made in a pre‑contractual setting,
such as during negotiations or in the course of an employment hiring interview,
and the fact that a contract is subsequently entered into by the parties do not,
in themselves, bar an action in tort for damages caused by said
misrepresentations. [Citation omitted.]

Cognos’s second argument was that the contractual provisions
should govern the extent of its liability. Cognos attempted to rely upon two
provisions in its agreement with Mr. Queen in order to limit their liability:

TRANSFER

13.Quasar Systems [later renamed Cognos] reserves the right
to reassign you to another position with the Company without reduction of your
salary or benefits and upon one month's notice to you. Should such
reassignment require your permanent relocation to another city, the Company
will reimburse you for your expenses in accordance with the then current
relocation policy.

TERMINATION NOTICE ‑‑ ONE MONTH

14.This Agreement may be terminated at any time and without
cause by Quasar Systems Ltd. or by you. In the event of termination,
Quasar Systems Ltd. will give you one month's notice of termination plus any
additional notice that may be required by any applicable legislation.
Similarly, you shall give Quasar Systems Ltd. one month's notice if you
voluntarily terminate this Agreement. Quasar Systems Ltd. may pay you one
month's salary in lieu of the aforesaid notice in which event this Agreement
and your employment will be terminated on the date such payment in lieu of
notice is made.

In rejecting the argument that articles 13 and 14 of
Cognos’s agreement with Mr. Queen were either waivers of their responsibility
to Mr. Queen or determinative of his remedies Justice Iacobucci held that:

Although I am
not prepared to hold that nothing less than the clearest and most express
disclaimer will suffice to negate a duty of care, something more than clauses
13 and 14 is definitely required. These provisions relate to the rights
and obligations of the parties in the event of the appellant's termination or
transfer. They have nothing to do with representations made during pre‑
or post‑contractual negotiations, let alone disclaimers for said
representations.

Justice McLachlin’s decision

In the result Mr. Queen’s appeal was allowed and he was
victorious. Justice Sopinka was the only justice to sign on to Justice
Iacobucci’s decision in full. Justices La Forest,
L'Heureux‑Dubé and Gonthier concurred with the result but disagreed that the
case was one of concurrency. Nothing more was offered by them on the point. For
her part, Justice McLachlin (as she then was) added the following to Justice
Iacobucci’ decision:

I agree
that the pre-contractual representation was different in scope and effect from
the contractual obligation. The matter is not merely one of semantics. It
turns on the plaintiff's assessment of the risk involved in leaving his
employment and joining Cognos. When
a person is deciding to enter a contract with terms governing termination, he
or she makes an assessment as to the risk of such termination occurring.
A stringent term as to termination may not deter the person from entering into
the contract if he or she is satisfied that the risk of termination materializing
is low. The representation at issue in this case concerned the risk
of termination coming about. The representation was not that Cognos would
not have the discretion to terminate or transfer the plaintiff on one month's
notice. Rather, by implying that the Multiview project was a reality,
that it had the financial support of Cognos, and that it had passed through the
feasibility and costing stage, Johnston on behalf of Cognos caused the
plaintiff to be misled as to the level of the risk to the plaintiff that Cognos
might at some point choose to exercise its termination power under the
employment contract. The plaintiff, believing Johnston, concluded that the risk
of being transferred or terminated was low. [Emphasis added.]

Commentary

The decision in Queen v. Cognos is an important one not only
for anyone wishing to advance a case for negligent misrepresentation but for
employment lawyers in particular.

As mentioned, unfortunately it is not uncommon for such
misrepresentations to still be made; especially in the case of start-ups or
companies expanding into new markets.

The case is further helpful because it affirms the position
that the extent of the employer’s liability is not tied to wrongful dismissal
concepts of notice, but rather to the reasonable expectation of the parties on
loss. Contractual provisions limiting notice are therefore irrelevant.

Takeaways

The takeaways for employees are: first and foremost is pays
to conduct one’s own due diligence on a position. While legal remedies are one
thing, not getting into such a situation is probably better. Second, if an
employee has been induced into accepting an offer that may have been too good
to be true, the employee may have recourse to remedies outside the traditional
employment law realm.

The takeaway for employers is that it pays to be cautious
about what is represented to potential employees. If the employer is found to
have misrepresented the position, then the employer may be found liable for far
more than was initially contemplated.

--

As always, everyone’s situation is different. The
above is not intended to be legal advice for any particular situation and it is
always prudent to seek professional legal advice before taking any decisions on
one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and
wrongful dismissal lawyer. He tweets from @SeanBawden.

2 comments:

On Christmas Eve, 2009, a swing stage (a work platform) suspended at the 14th floor of an Ontario apartment building collapsed. Four workers, including the site supervisor, died after falling to the ground. Metron Construction was charged with criminal negligence causing death under Canada’s Criminal Code. Metron’s owner and sole director, Joel Swartz, was charged under Ontario’s Occupational Health and Safety Act. Both pled guilty. In two decisions, R.V. Metron and R.V. Swartz, both were fined significantly. The basis for the charges and fines? The expanded scope of criminal liability under the Criminal Code, which is no longer confined to the “directing mind” of a corporation. Here it applied to an independent contractor.